Dr Vijay Kelkar, Advisor to the Finance Minister, with Mr Suketu Shah, Chairman, CII, at a national conference on `Strengthening of Capital Markets' in Mumbai on Monday.

MUMBAI, Dec. 9

MAKING a pitch for his report on reforms in taxation, Dr Vijay Kelkar, Advisor to Union Finance Minister, today recounted the rationale behind the many changes proposed in the current tax structure.

To an audience comprising mutual fund managers, investment bankers and the odd financial analyst in a CII-organised conference on `Strengthening of capital markets', Dr Kelkar said one of the main reasons for the cost of capital being high was rising tariffs, especially import duties. "We are in a unique situation where the current account is a surplus and at the same time, investments are declining. Cost of capital and business has gone up due to high tariffs and with high transaction costs, sectors such as textile industry have been affected," he said.

The economy could save Rs 5,000 crore annually through reforming systems and reduction in transaction costs, he said.

On direct taxes, Dr Kelkar said that the incentives increased interest rates. "What is micro rational has become macro irrational. One must understand that exemption Raj would be beneficial to certain `lobbies' only," he said.

Reiterating the need for transparency in the tax system, Dr Kelkar said with transparency, the compliance rate would be far higher culminating in increased revenue generation.

The task force would work on the feedback from the industry in the next few days and present revised reports to the Union Finance Ministry.